AUD\/USD fell to about 0.7055 in early Asian trade on Monday. The US Dollar strengthened against the Australian Dollar as tensions rose in the Middle East after the US and Israel launched an ongoing attack on Iran\u2019s leadership and military.<\/p>\n
The US and Israel began major combat operations against Iran after a joint military strike on Saturday. Iranian state television said Iran\u2019s Supreme Leader, Ayatollah Ali Khamenei, was killed in an airstrike in Tehran on Saturday.<\/p>\n
Iran responded with missile and drone attacks on Israel and US military bases in Kuwait, Bahrain, Qatar, and Jordan. The risk of a wider conflict supported the US Dollar and weighed on AUD\/USD.<\/p>\n
Markets are watching for further developments in US-Iran tensions. Some analysts also flagged US policy turbulence under the current administration as a possible factor affecting the US Dollar versus the Australian Dollar.<\/p>\n
Given the sharp increase in geopolitical risk, we expect market volatility to surge in the coming weeks. Traders should look to the CBOE Volatility Index (VIX), which likely has already gapped significantly higher; we saw a similar VIX move from below 20 to over 35 in the weeks following the start of the Ukraine conflict in early 2022. This environment makes buying options premium expensive but necessary for hedging.<\/p>\n
For the AUD\/USD pair, further downside seems probable as the Aussie dollar is a classic risk-off currency. We believe establishing bearish positions through buying put options on the AUD\/USD is a direct way to gain from or hedge against further declines. Historically, the AUD has shown a strong positive correlation with global equity performance, and we saw it fall sharply during the risk-off events of 2022.<\/p>\n
The most direct impact will be on crude oil, with a high probability of supply disruptions in the Middle East. We anticipate a rapid climb in both WTI and Brent crude prices, potentially exceeding the 25% spike we witnessed in the month after the conflict in Ukraine began. Buying call options or call spreads on oil futures or related ETFs offers a way to position for this expected rally.<\/p>\n
This flight to safety will also benefit traditional havens like gold. We expect gold to break through recent resistance levels as investors seek protection from both the conflict and currency market turmoil. Using gold futures or call options on gold-backed ETFs is a standard strategy in this type of crisis environment.<\/p>\n
In equity markets, we must prepare for broad-based selling pressure on major indices like the S&P 500. Purchasing protective puts on index trackers is a prudent hedging strategy for existing portfolios. We would also anticipate sector-specific moves, such as weakness in airlines due to higher fuel costs and significant outperformance in defense sector stocks, much like the dynamic observed in 2022.<\/p>\n
However, the strength of the US Dollar may not be permanent, and we should be cautious. While the greenback benefits from initial safe-haven flows, a prolonged and costly conflict could raise serious questions about the US economic outlook. This suggests considering longer-dated options strategies that might profit from an eventual reversal in the dollar’s fortunes once the initial shock subsides.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" AUD\/USD slid to 0.7055 as Middle East conflict escalated; stronger US Dollar pressured the Australian currency.<\/p>\n","protected":false},"author":103,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-50463","post","type-post","status-publish","format-standard","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/50463","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/users\/103"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/comments?post=50463"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/50463\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media?parent=50463"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/categories?post=50463"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/tags?post=50463"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}